Infosys' Non-Compete Clause: Should Other Companies Follow Suit Despite Legal Concerns?

Infosys comes down hard on quitting employees

IT giant Infosys is having all its employees sign a non-compete clause which states that even after the employee quits the company, he/she cannot work for any of Infosys' competitors. In fact, the clause allegedly lists by name the top five rival companies -- Tata Consultancy Services, Accenture, IBM Global Services, Cognizant, and Wipro.

It also disallows employees from taking up job offers presented to them by the organization's customers for up to six months after quitting if the employee in question has worked on that particular customer's assignments in the previous year.

Infosys has justified this clause, saying it is a common practice for companies to safeguard their interests and bind their employees to them. Although the legal standing of such a contract is disputed, many employees simply prefer to pay the penalty when breaching it rather than face a powerful company's legal team in court.

Should other companies also take this action? Our company has a high attrition rate. What is the major legal procedure for this?

What are the disadvantages of this?

Please give your valuable comments.

Regards,

Pranita

Dear Rishi,

I am sorry, but I cannot provide you with any suggestions on this. I find this to be a very good retention strategy by Infosys to safeguard their interests. I believe this is easily achievable for big companies. You can also do it, but you need to provide your employees with very tempting pay packages, perks, and other benefits. Then, even if you impose any restrictions, they will continue to work with you.

Regards,
Anu

As far as my knowledge goes, there is no law restricting the addition of such types of clauses. However, there have been court cases wherein the court declined to give leverage to companies to amend terms of appointments already agreed upon with appointed employees. For existing employees, this can be seen as a 'bond'. But again, a 'bond' can only be imposed if the company has provided special training to the employee and has invested a considerable amount in it. Losing the employee would then result in financial and time losses.

Hi Pranita,

According to Section 27 of the Indian Contract Act, an employer cannot restrain the employee from starting a new business or joining a rival firm, subject to one exception: that he/she should not leak out secrets of the concern they worked in. There have been many cases, and in Indian history, no employee has won the case with similar circumstances. I, therefore, request you to provide me with the full details so that I can give you further information in this regard.

Jyotika

Hi, Think about this: if some companies put a clause stating that all Microsoft Professionals are not allowed to work in any other organization that works on Microsoft Technologies or Cisco Technologies, how would you respond to this? Do you consider it a good retention policy by big companies?

I was looking for a forum where people can collectively create a database to define companies' policies and how those policies can affect the professional community. I have encountered some terrible companies and strongly believe that people should avoid joining them even if they are in desperate need.

Dear Rishi,

To me, prima facie, the above stipulation in both situations - not to join those five listed same business competitor companies as well as not to work with clients for 6 months - appears to be void. At least two High Courts have held similar opinions. I will check Supreme Court judgments on this and will come back to you.

The High Court judgments are as follows:

1. Negative Covenant. Enforcement of an agreement between the employer and the employee restraining the employee from engaging or undertaking employment for 12 months from the date. Unenforceable, void, and against public policy. Pepsi Foods Ltd. vs. Bharat Coca-Cola Holdings Pvt. Ltd., 1999, LLJ.1140. Delhi High Court.

2. A service covenant extended beyond the termination of the service is void. Sandhva Organic Chemicals Pvt. Ltd. vs. United Phosphorous Ltd., AIR 177, 1990. Gujarat High Court.

I hope this helps clarify the legal perspective. Let me know if you need any further information.

Best regards

Jyotika, you have provided valuable information from a legal standpoint. However, I am curious as to why employees have not won any cases, specifically in situations such as leaking secrets or joining a rival firm. Could you please shed some light on this? Thank you.

Chinmay

Hi Rishi,

A very good topic for discussion.

A company cannot restrict anybody once the contract of employment is terminated.

The only way you can stop an employee's employability in rival companies is by MOU between the companies in question. This is seen in the telecom industry to some extent in India as per my knowledge.

The HR team in these companies can restrict their employability during reference checks while selecting.

Secondly, the company's customers can be obliged to this, which is again a decision of the company because you cannot dictate terms to your customers. They pay for what they get from you. Such clauses may seem absurd to a sensible customer.

The entire clause will not hold any water as the right against discrimination and the right to equal opportunities come into the picture.

You cannot stop anyone like this. This might even lead to union activities.

In fact, this seems more like personnel management than human resource management. We have come a long way on this...

Thanks & Regards,

Deepak. M

Hi again,

Mr. Pankaj has given a good example of the same. If companies follow such techniques, then the only technique the employees adopt is strikes. This is not seen in the Indian IT industry, but such practices will soon invite all these.

Deepak. M